UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X)QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from to
Commission file number 1-11151
U.S. PHYSICAL THERAPY, INC.
(Name of small business issuer in its charter)
Nevada 76-0364866
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3040 Post Oak Blvd., Suite 222, Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (713) 297-7000
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes(X) No
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date: 3,594,715
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 8
<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1997 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,407 $ 4,912
Patient accounts receivable, less
allowance for doubtful accounts
of $1,297 and $1,159,
respectively 6,639 6,359
Accounts receivable-other 202 127
Other current assets 376 407
Total current assets 12,624 11,805
Fixed assets:
Furniture and equipment 7,120 7,043
Leasehold improvements 3,433 3,280
10,553 10,323
Less accumulated depreciation 4,705 4,317
5,848 6,006
Noncompete agreements, net of
amortization of $429, and $406,
respectively 195 218
Goodwill, net of amortization of
$104, and $94, respectively 801 811
Other assets 783 643
$ 20,251 $ 19,483
See notes to consolidated financial statements.
3 <PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1997 1996
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 163 $ 275
Accrued expenses 1,031 971
Estimated third-party payor
(Medicare) settlements 1,563 1,277
Notes payable 72 68
Total current liabilities 2,829 2,591
Notes payable - long-term portion 241 226
Convertible subordinated notes
payable 8,050 8,050
Minority interests in subsidiary
limited partnerships 1,142 1,021
Commitments - -
Shareholders' equity:
Preferred stock, $.01 par value,
500 shares authorized, -0-
shares outstanding - -
Common stock, $.01 par value,
10,000 shares authorized, 3,595
shares outstanding at March 31,
1997 and December 31, 1996,
respectively 36 36
Additional paid-in capital 11,661 11,661
Accumulated deficit (3,708) (4,102)
Total shareholders' equity 7,989 7,595
$ 20,251 $ 19,483
See notes to consolidated financial statements.
4<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended
March 31,
1997 1996
(unaudited)
Net patient revenues $ 8,627 $ 7,494
Other revenues 65 29
Net revenues 8,692 7,523
Clinic operating costs:
Salaries and related costs 4,127 3,454
Rent, clinic supplies and other 2,349 2,241
Provision for doubtful accounts 234 185
6,710 5,880
Corporate office costs:
General and administrative 794 760
Recruitment and development 319 185
1,113 945
Operating income before non-
operating expenses 869 698
Interest expense (183) (184)
Minority interests in subsidiary
limited partnerships (276) (226)
Income before income taxes 410 288
Provision for income taxes (16) -
Net income $ 394 $ 288
Net income per common and common
equivalent share $ .11 $ .08
See notes to consolidated financial statements.
5<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
March 31,
1997 1996
(unaudited)
Operating activities
Net income $ 394 $ 288
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 452 415
Minority interests in earnings
of subsidiary limited
partnerships 276 226
Provision for bad debts 234 185
Loss (gain) on sale of fixed
assets (3) 1
Changes in operating assets and
liabilities:
Increase in patient accounts
receivable (514) (746)
Increase in accounts receivable-
other (75) (14)
Decrease (increase) in other
assets (112) 22
Increase (decrease) in accounts
payable and accrued expenses (52) 60
Increase in estimated third-
party payer (Medicare)
settlements 286 292
Net cash provided by operating
activities 886 730
See notes to consolidated financial statements.
6<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
March 31,
1997 1996
(unaudited)
Investing activities
Purchase of fixed assets (322) (299)
Purchase of intangibles - (303)
Proceeds on sale of fixed assets 67 -
Net cash used in investing
activities (255) (602)
Financing activities
Proceeds from notes payable 40 215
Payment of notes payable (21) (14)
Proceeds from investment of minority
investors in subsidiary limited
partnerships 1 5
Distributions to minority investors
in subsidiary limited partnerships (156) (97)
Net cash used in financing
activities (136) (109)
Net increase in cash and cash
equivalents 495 237
Cash and cash equivalents -
beginning of period 4,912 2,634
Cash and cash equivalents -
end of period $ 5,407 $ 2,871
Supplemental disclosures of cash
flow information
Cash paid during the period for:
Income taxes $ 89 $ 5
Interest $ 165 $ 164
See notes to consolidated financial statements.
7<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
1. Basis of Presentation and Significant Accounting Policies
The consolidated financial statements include the accounts of U.S.
Physical Therapy, Inc. and its wholly-owned subsidiaries (the
"Company"). All significant intercompany transactions and balances
have been eliminated. With the exception of two clinics in which
the Company has a 100 percent ownership percentage, the Company,
through its wholly-owned subsidiaries, currently owns a one percent
general partnership interest and limited partnership interests
ranging from 59 percent to 80 percent in the clinics it operates.
For the majority of the clinics, the managing therapist of each
such clinic, along with other therapists at the clinic in several
of the partnerships, own the remaining limited partnership interest
in the clinic which ranges from 19 percent to 40 percent. The
minority interest in the equity and earnings of the subsidiary
clinic limited partnerships are presented separately in the
consolidated financial statements.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with
the instructions for Form 10-QSB. Accordingly, the statements do
not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
In the opinion of management, the accompanying unaudited financial
statements contain all necessary adjustments (consisting only of
normal recurring adjustments) to present fairly the Company's
financial position, results of operations and cash flows for the
interim periods presented. For further information regarding the
Company's accounting policies, refer to the audited financial
statements included in the Company's Form 10-KSB for the year ended
December 31, 1996.
8<PAGE>
Operating results for the three months ended March 31, 1997 ("1997
First Quarter) are not necessarily indicative of the results
expected for the entire year.
Use of Estimates
Management is required to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
2. Stock Repurchase Program
During the 1997 First Quarter, the Company's Board of Directors
authorized it to repurchase up to 200,000 shares of its common
stock. The timing of which and the actual number of shares
purchased will depend on market conditions. The repurchased shares,
which will be financed with available cash, will be held as treasury
shares and will thereafter be available for general corporate
purposes.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Overview
The Company operates outpatient physical and occupational therapy
clinics which provide post-operative care and treatment for a
variety of orthopedic-related disorders and sports-related injuries.
At March 31, 1997, the Company operated 69 outpatient physical and
occupational therapy clinics in 20 states. The average age of the
69 clinics in operation at March 31, 1997 is 2.6 years old. Since
inception of the Company, 71 clinics have been developed and five
clinics have been acquired by the Company. To date, the Company has
closed two facilities, due to adverse clinic performance,
consolidated the operations of three of its clinics with other
existing clinics to more efficiently serve various geographic
markets and sold certain fixed assets at two of the Company's
clinics and then closed such facilities. The sale of fixed assets
and the concurrent closure of the two clinics occurred during the
1997 First Quarter. No loss was recognized relating to these 1997
First Quarter closures. These two clinics combined accounted for
net patient revenues and clinic operating costs for the three months
9<PAGE>
ended March 31, 1997 ("1997 First Quarter") of $(1,000) and $48,000,
respectively, and for the three months ended March 31, 1996 ("1996
First Quarter") of $56,000 and $129,000, respectively.
Results of Operations
Three Months Ended March 31, 1997 Compared to the Three Months Ended
March 31, 1996
Net Patient Revenues
Net patient revenues increased to $8,627,000 for the 1997 First
Quarter from $7,494,000 for the 1996 First Quarter, an increase of
$1,133,000, or 15 percent. Net patient revenues from the 12 clinics
developed since the 1996 First Quarter (the "New Clinics") accounted
for 64 percent of the increase or $725,000. The remaining increase
of $408,000 in net patient revenues comes from those 57 clinics
opened more than one year as of March 31, 1997 (the "Pre-March 1997
Clinics"). Of the $408,000 increase in net patient revenues for
these clinics, a three percent increase in the number of patient
visits increased net patient revenues by $239,000, which was coupled
by an increase in the average rate charged per visit of two percent.
Net patient revenues are based on established billing rates less
allowances and discounts for patients covered by worker's
compensation programs and other contractual programs. Payments
received under these programs are based on predetermined rates and
are generally less than the established billing rates of the
clinics. Net patient revenues reflect reserves, which are evaluated
quarterly by management, for contractual and other adjustments
relating to patient discounts from certain payors. Net patient
revenues also are reported net of estimated retrospective
adjustments under Medicare. Medicare reimbursement for outpatient
physical or occupational therapy services furnished by clinics or
rehabilitation agencies is paid based on a cost reimbursement
methodology. The Company is initially reimbursed at a tentative
rate with final settlement determined after submission of an annual
cost report by the Company and audits thereof by the Medicare fiscal
intermediary.
10<PAGE>
Other Revenues
Other revenues, consisting of interest, management fees, sublease
and real estate commission income, increased by $36,000, or 124
percent, to $65,000 for the 1997 First Quarter from $29,000 for the
1996 First Quarter. This increase was due primarily to management
fees earned in connection with a contract the Company entered into
during the 1997 First Quarter to manage a third party physical
therapy clinic, coupled with an increase in interest income as a
result of the higher average amount of cash and cash equivalents
available for investment during the 1997 First Quarter. These
increases were offset, in part, by a decrease in real estate
commission income.
Clinic Operating Costs
Clinic operating costs as a percent of net patient revenues remained
stable at 77% for 1996 compared to 79% for 1995.
Clinic Operating Costs - Salaries and Related Costs
Clinic operating costs - salaries and related costs increased to
$4,127,000 for the 1997 First Quarter from $3,454,000 for the 1996
First quarter, an increase of $673,000 or 19 percent. Approximately
57 percent of the increase, or $385,000, was due to the New Clinics.
The remaining 43 percent increase or $288,000 is due principally to
increased staffing to meet the increase in patient visits for the
clinics opened prior to the 1997 First Quarter, coupled with an
increase in bonuses earned by the managing therapists at the clinics
opened prior to the 1997 First Quarter. Such bonuses are based on
the gross revenues or operating profit generated by the individual
clinics.
Clinic Operating Costs - Rent, Clinic Supplies and Other
Clinic operating costs - rent, clinic supplies and other increased
to $2,349,000 for the 1997 First Quarter from $2,241,000 for the
1996 First Quarter, an increase of $108,000, or five percent. Such
costs for the New Clinics for the 1997 First Quarter were $199,000,
which were offset in part by a decrease in such costs of $91,000
relating to the clinics opened prior to the 1997 First Quarter.
Clinic operating costs - rent, clinic supplies and other as a
percent of net patient revenues has declined slightly from 30
percent for the 1996 First Quarter to 27 percent for the 1997 First
Quarter.
11<PAGE>
Clinic Operating Costs - Provision for Doubtful Accounts
Clinic operating costs - provision for doubtful accounts increased
to $234,000 for the 1997 First Quarter from $185,000 for the 1996
First Quarter, an increase of 26 percent or $49,000. Approximately
33 percent of the increase, or $16,000, was due to the New Clinics,
while 68 percent, or $33,000, of the increase relates to the clinics
opened prior to the 1997 First Quarter. The provision as a percent
of net patient revenues increased slightly to 2.7 percent for the
1997 First Quarter compared to 2.5 percent for the 1996 First
Quarter.
Corporate Office Costs - General & Administrative
Corporate office costs - general and administrative, consisting
primarily of salaries of corporate office personnel and related
costs, insurance costs, depreciation and amortization, travel and
legal, and professional fees increased slightly by four percent to
$794,000 for the 1997 First Quarter from $760,000 for the 1996 First
Quarter, primarily due to an increase in travel expenses of
corporate office personnel needed to service the increased number of
clinics in operation at March 31, 1997. Corporate office costs -
general and administrative, as a percent of net revenues, decreased
from 10 percent for the 1996 First Quarter to nine percent for the
1997 First Quarter, reflecting increased revenues in the 1997 First
Quarter.
Corporate Office Costs - Recruitment & Development
Corporate office costs - recruitment and development primarily
represent salaries of recruitment and development personnel, travel,
marketing and recruiting fees attributed directly to the Company's
activities in the development and acquisition of new and future
clinics. All recruitment and development personnel are located at
the corporate office in Houston, Texas. Once a clinic has opened,
these personnel are not involved with the clinic. Corporate office
costs - recruitment and development increased $134,000 or 72 percent
to $319,000 for the 1997 First Quarter from $185,000 for the 1996
First Quarter. The majority of this increase relates to an increase
in salaries and related costs of recruitment and development
personnel which were added in response to management's intention to
accelerate the pace of new clinic openings during 1997 from the
level of 12 new clinics developed and opened during 1996. Coupled
with the increase in salaries and related costs is an increase in
recruiting fees which also correlate with the anticipated growth in
new clinic openings in 1997.
12<PAGE>
Interest Expense
Interest expense of $183,000 for the 1997 First Quarter relates
primarily to $60,000 of interest expense on the $3,050,000 aggregate
principal amount of 8% Convertible Subordinated Notes issued by the
Company in June 1993 and $99,000 of interest expense on the
$5,000,000 aggregate principal amount of 8% Series B and Series C
Notes issued by the Company in May 1994. In addition, $19,000 of
interest expense was recorded in the 1997 First Quarter relating to
the Contingent Interest Enhancement feature of the Series B Notes.
This feature allowed Series B Note holders to receive an interest
enhancement payable in shares of Company Common Stock based upon the
market value of the Company's shares for the month of June 1996,
which corresponded to two years from the date of issuance of the
Series B Notes (the "Contingent Interest Enhancement"). A total of
70,965 shares of Company Common Stock were issued in connection with
the Contingent Interest Enhancement feature.
Minority Interests in Subsidiary Limited Partnerships
Minority interests in subsidiary limited partnerships increased
$50,000, or 22 percent, to $276,000 for the 1997 First Quarter from
$226,000 for the 1996 First Quarter due to the increase in aggregate
profitability of those clinics in which partners have achieved
positive retained earnings and are accruing partnership income.
Provision for Income Taxes
The provision for income taxes increased to $16,000 for the 1997
First Quarter from $0 for the 1996 First Quarter, due primarily to
an increase in taxable income from 1996 to 1997.
Net Income
The Company's net income for 1997 First Quarter of $394,000 exceeded
the 1996 First Quarter's net income of $288,000 principally due to
the $1,169,000 increase in net revenues, which more than offset the
$830,000 increase in clinic operating costs, the $168,000 increase
in corporate office costs and the $50,000 increase in minority
interests in subsidiary limited partnerships.
13<PAGE>
Liquidity and Capital Resources
At March 31, 1997, the Company had $5,407,000 in cash and cash
equivalents, which is available to fund the working capital needs of
its operating subsidiaries, future clinic developments and
acquisitions and the Company's repurchase of shares of its common
stock. Included in cash and cash equivalents at March 31, 1997
is $3,000,000 of short-term government agency securities and
$980,000 of short-term government money market funds. The market
value of the short-term U.S. government agency securities and the
Government money market funds approximated the carrying value of
such securities as of March 31, 1997.
The increase in cash of $495,000 from December 31, 1996 to March 31,
1997 is due to cash provided by operating activities of $886,000,
coupled with proceeds from notes payable of $40,000 and proceeds
from the sale of fixed assets of $67,000, offset in part by the
Company's use of cash to fund capital expenditures, primarily for
physical therapy equipment, leasehold improvements and intangibles,
in the amount of $322,000, and distributions to minority partners in
subsidiary limited partnerships of $156,000.
The Company's current ratio declined slightly to 4.46 to 1.00 at
March 31, 1997 from 4.56 to 1.00 at December 31, 1996. At March 31,
1997, the Company had a debt-to-equity ratio of 1.05 to 1.00
compared to 1.10 to 1.0 at December 31, 1996. The improvement in
the debt-to-equity ratio from December 31, 1996 to March 31, 1997
relates primarily to the increase in equity as a result of the net
income of $394,000 for the quarter ended March 31, 1997.
The quarterly interest obligation on the outstanding 8% Convertible
Subordinated Notes, the 8% Convertible Subordinated Notes, Series
B and the 8% Convertible Subordinated Notes, Series C is $61,000,
$40,000 and $60,000, respectively, through June 30, 2003, June 30,
2004 and June 30, 2004, respectively.
During the 1997 First Quarter, the Company's Board of Directors
authorized it to repurchase up to 200,000 shares of its common
stock. The timing of which and the actual number of shares
purchased will depend on market conditions. The repurchased shares,
which will be financed with available cash, will be held as treasury
shares and will thereafter be available for general corporate
purposes.
14<PAGE>
Management believes that existing funds, supplemented by cash flows
from existing operations, will be sufficient to meet its current
operating needs and its development plans through at least 1997.
Factors Affecting Future Results
Operating results in future periods may be affected by the Company's
plan to accelerate the pace of new clinic openings in 1997 from the
12 new clinic openings which occurred in 1996. Increased clinic
openings traditionally involve a significant amount of start-up
costs, such as travel and recruitment fees. In addition, during the
initial period of operation, operating margins for newly opened
clinics tend to be lower than more seasoned clinics due to the
start-up costs of newly opened clinics (salaries and related costs
of the physical therapist and other clinic personnel, rent and
equipment and other supplies required to open the clinic) and the
fact that patient revenues tend to be lower in the first year of a
new clinic's operation and increase over the next several years.
Recently Promulgated Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be
adopted on December 31, 1997. At that time, the Company will be
required to change the methods currently used to compute earnings
per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the
dilutive effect of outstanding stock options and warrants will be
excluded. The impact of Statement 128 on the calculation of primary
earnings per share and fully diluted earnings per share for the
first quarter ended March 31, 1997 is not expected to be material.
15<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits
27. Financial Data Schedule
(b) Reports of Form 8-K
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended March 31, 1997.
16<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
U.S. PHYSICAL THERAPY, INC.
Date: May 13, 1997 By: /s/ MARK J. BROOKNER
Mark J. Brookner
Chief Financial Officer and
Treasurer (duly authorized officer
and principal financial officer)
17
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